I would like to express my sincere gratitude to the shareholders and other stakeholders of the Bank of the Ryukyus for their continued support. The following is a report on the Bank’s business performance and financial position for the fiscal 2007 business term (April 1 2007 to March 31, 2008).

Financial & Economic Environment

During fiscal 2007 the Japanese economy staged a moderate recovery, driven by such corporate-sector factors as exports and capital investment, but the risk of a downturn was growing inexorably. This was due to such international factors as the subprime mortgage loan problem in the United States and rising prices of raw materials on world markets, as well as the solely domestic factor of the enforcement of the Revised Building Standards Law, which negatively impacted housing investment.

The economy of Okinawa Prefecture marked time during the reporting period. Continued construction of new hotels was seen, taking advantage of increased tourist numbers. The number of tourists – both from the rest of Japan and overseas countries -- registered growth thanks to the continued popularity of Okinawa as a vacation spot. On the other hand, consumer spending remained weak, and construction activity overall was sluggish due to the enforcement of the Revised Building Standards Law. On the bright side, unemployment figures improved slightly during the period, and the number of corporate bankruptcies declined somewhat from the previous term.

Business activities and performance results

Although our top priority is to complete the repayment of the Bank’s outstanding public fund debt, in view of the fact that this goal is now within sight, we have decided to take the bold decision to switch our management stance from defensive to aggressive. To serve us as a guideline in this effort, we drew up our new medium-term business plan – under the name of Challenge 51 – which went into effect in April 2007.

In line with the new plan, during the reporting period we launched a number of new financial services, began providing assistance for SMEs in diversifying their fund procurement methods, and took steps to strengthen our customer base. These initiatives are described hereunder.

The new financial services principally consisted of M&A advisory and business succession consulting services on an individual corporate customer basis, in addition to helping food companies expand their sales through the utilization of the Maruichi-Meat Web Shopping website operated by Infomart Corporation, with which the Bank has concluded a business tie-up. We also participated in business meetings held in Shanghai.

To help SMEs diversify their fund procurement methods, in July 2007 we began offering Asset Based Lending (ABL) -- secured lending in which we accept assets other than real estate as collateral, such as production facilities or inventories.

During the reporting period we also began deploying new marketing channels. In December 2007 the Bank of the Ryukyus became the first bank in Okinawa to offer an online foreign exchange service, and we also opened a new branch in Naha, the Shintoshin Branch.

 Measures taken during the term to strengthen the Bank’s customer base included the launch of the Hayamaru business loan in collaboration with the Okinawa Prefecture Credit Guarantee Association, as well as new housing mortgage loan products offered in collaboration with housing construction companies.

Issues facing the Bank

Against the background of rising fears of an economic slowdown, business conditions for the Bank have been growing increasingly severe, owing to the birth of the Japan Post Bank in October 2007 and the expansion of business activity by the megabanks into non-metropolitan regions of the country. In response, we will be required to satisfy our customers’ changing needs by differentiating the Bank from its competitors through the kind of unique services that only a regional financial institution can provide.

Our main management target for fiscal 2008 will be to strengthen our earnings structure so as to support the implementation of growth strategies. These efforts will focus on strengthening our retail banking business, including a greater emphasis on the promotion of consumer loans, including mortgage loans, the effective use of new loan products in collaboration with credit guarantee associations to increase loans to SMEs, the sale of financial products, and the provision of new financial services such as consultation on business succession issues. In these ways, we will aim to enhance the Bank’s services from the twin perspectives of quality and quantity, so as to reach the numerical targets under our medium-term management plan.

In May this year (2008) the Bank celebrated the 60th anniversary of its establishment. We intend to continue evolving proactively as a financial institution that devotes itself to meeting customers’ needs while adapting effectively to the changing financial environment. We hope to play a significant role in the further growth and development of the Okinawan economy and society by fulfilling the functions expected of the prefecture’s leading bank. In this way, we aim to retain the strong trust of the people of Okinawa, and to remain the bank of choice for the community.

March 2008

Isao Oshiro,

President